Energy Committee Finalizes Grow House Tax Advice – May 22, 2012

Tuesday, May 22, 2012

Kevin L. Hoover

Eye Editor

CITY HALL – In a meeting that topped three hours Monday night, May 21, Arcata’s citizen-led Energy Committee formulated its final recommendation to the City Council on a proposed tax on excessive residential electricity consumption. The council will consider the proposal at its June 6 meeting. Arcata voters would have to approve the new tax, and the council could decide to place the measure on the November ballot.

Several citizens participated in the discussion, offering insight into possible benefits and negative consequences of the tax. Mayor Michael Winkler, a sustainable energy expert, also attended the meeting.

Environmental Services Director Mark Andre had stated at the meeting’s outset that the proposed tax is targeted at any form of non-exempt electricity use that exceeds 300 percent of baseline usage, and that it doesn’t necessarily target any specific users. But over the course of the meeting, discussion came to focus on excessive electricity use by illegal cannabis grow houses, which are believed responsible for a surge in Arcata’s residential energy use which is defeating the City’s Greenhouse Gas Reduction program.

“The Public Utilities (PU) Code establishes baseline quantities for average residential gas and electricity use within each baseline territory. The PU code specifically requires that baseline quanties fall between 50 and 60 percent of average use for basic-electric customers in both the summer and winter and for all-electric and gas customer in the summer. The PU code also requires that baseline quantities fall between 60 to 70 percent of average use for all-electric and gas customers in the winter.”

PG&E data on specific residences which exceed baseline usage would not be supplied to the City. However, residents on whom the tax is imposed could apply for an exemption, and City personnel would then conduct an energy assessment on the residence to verify that the high electricity use doesn’t result from illegal activity. “Legitimate” high-electricity uses might include large families, electric vehicle charging and legal home businesses.

The committee’s advisory to the council gave focus to some key issues – the tax’s rate, the energy use threshold at which it would kick in, exemptions, whether the tax would apply to participants in PG&E’s CARE (California Alternate Rates for Energy) program, the duration of the law and how any resulting tax revenue might be used.

The committee’s final recommendation, which will serve as a launching point for council discussion, is as follows:

To impose a 15 cent per kilowatt hour tax on all customers who exceed 300 percent of baseline, and for staff to develop an application pricess for exemption to include home businesses and large or extended families living as one household, with an eight-year sunset on the tax. CARE participants would not be automatically exempted, but could apply for an exemption.

Funds would be used on a priority basis to pay back PG&E for the estimated $800,000 cost of implementing the tax, and to develop an endowment for sustainable funding for an energy program specialist and to implement energy efficiency measures and incentivise energy efficiency. Staff would present annual recommendations to the Energy Committee and City Council for use of the the revenue.

Revenue would go to the City’s General Fund, with some sort of oversight, possibly similar to the Transactions and Use Tax Committee which monitors proceeds and use of Arcata’s voter-approved sales tax.

Concerned about unanticipated consequences, some committeemembers questioned whether the tax might discourage legal grows, or if it could compel the growers to increase production to compensate for the added expense. Members also expressed concern over possible economic impact of driving growers and their cash flow out of Arcata.

Staff will solicit input from cannabis business such as hydroponic and garden supply shops as to whether and how a tax would change behavior. Findings will be included in the report to the council.

Further background on the proposed tax was offered in a May 16 City of Arcata press release.